New Fed Survey Confirms Tightening Credit Card Practices

November 12, 2008, Written By Sarah Hefner
New Fed Survey Confirms Tightening Credit Card Practices

A new Federal Reserve Survey shows that it is becoming more difficult for consumers to get credit cards and that banks are lowering credit limits on existing card customers.

The Federal Reserve October 2008 Senior Loan Officer Opinion Survey on Bank Lending Practices says that a majority of domestic banks reported that they are tightening standards on both credit cards and consumer loans.

Here are the survey’s key findings about credit card and consumer loans:

* About 50% reported that they increased the minimum required credit scores on credit card accounts over the past three months. Approximately 60% reported that they raised minimum scores on other consumer loans over the same period, which is about the same as the July survey.

* A majority of respondents, about 60%, reported that they reduced the extent to which credit card accounts were granted to customers who did not meet their bank’s credit-scoring thresholds. A similar percentage of respondents reported a reduction in granting other kinds of consumer loans for that reason.

* About 20% of domestic banks reported having reduced credit limits on existing credit card accounts to prime borrowers. But roughly 60% of banks had lowered limits on existing credit card accounts of non-prime borrowers; no banks reported raising limits to those borrowers. Reasons for lowering credit limits include an uncertain economic outlook, a more conservative position on risk, a decline in customer credit scores, and missed payments by customers on credit card loans and other loans at their bank.

* Almost 60% of respondents indicated that they had stiffened lending standards on consumer loans over the past three months.

This proves that banks are paying more attention than ever to credit scores. The reductions in credit limits and loan offers are not just rumors, they are now becoming bank policies. It is extremely important that consumers do all they can to maintain their credit score and not appear to be a greater risk. If that happens in this financial environment, you are almost sure to see your APR increase and/or your credit limit decreased.

To help maintain your credit score, a consumer should pay all bills on time, not just credit card bills. Experts advise to pay well over the minimum amount, and keep debt utilization ratio under 30%.

This survey is based on responses from 55 domestic banks and 21 U.S. branches and agencies of foreign banks. Here is the full report:

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The information contained within this article was accurate as of November 12, 2008. For up-to-date
information on any of the terms, cards or offers mentioned above, visit the issuer's website.

About Sarah Hefner

Sarah Hefner has written for several publications as well as serving as an editor to various writers. She graduated from the School of Communications & Journalism at Auburn University with a Bachelor of Arts degree in Public Relations.
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